Black Mountain Community Improvement DistrictThe Black Mountain Community Improvement District...

Report No. 2019-119 December 2019

Black Mountain

Community Improvement District

auditor.mo.gov

December 2019 Nicole Galloway, CPA

Missouri State Auditor CITIZENS SUMMARY

Findings in the audit of the Black Mountain Community Improvement District

The Black Mountain Community Improvement District (CID), which was approved by the City of Van Buren to create a sales tax for the purpose of making public infrastructure improvements inside the district's boundaries, was instead used by its creators and former Board members to pay off private business debts and to improve private commercial property for resale. Also, documentation was not retained to support some payments made to companies owned by board members. The CID Board did not prepare or post meeting notices with agendas, meeting minutes were not always maintained, and the board has not adopted a written policy regarding public access to district records as required by state law. The CID Board did not enter into a written contract to support the agreement to reimburse $135,000 in construction costs to a developer. The Board repeatedly failed to submit the required annual performance reports to the city and the state's Department of Economic Development as required by state law. The CID Board failed to submit its annual budgets for the years ended December 31, 2010 through December 31, 2017, to the city as required by state law. Also, district budgets did not contain all the elements required by state law.

*The rating(s) cover only audited areas and do not reflect an opinion on the overall operation of the entity. Within that context, the rating scale indicates the following:

Excellent: The audit results indicate this entity is very well managed. The report contains no findings. In addition, if applicable, prior recommendations have been implemented.

Good: The audit results indicate this entity is well managed. The report contains few findings, and the entity has indicated most or all recommendations have already been, or will be, implemented. In addition, if applicable, many of the prior recommendations have been implemented.

Fair: The audit results indicate this entity needs to improve operations in several areas. The report contains several findings, or one or more findings that require management's immediate attention, and/or the entity has indicated several recommendations will not be implemented. In addition, if applicable, several prior recommendations have not been implemented.

Poor: The audit results indicate this entity needs to significantly improve operations. The report contains numerous findings that require management's immediate attention, and/or the entity has indicated most recommendations will not be implemented. In addition, if applicable, most prior recommendations have not been implemented.

Misappropriation of District Revenues

Noncompliance with State Law

In the areas audited, the overall performance of this entity was Poor.*

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2 Background .................................................................................................... 3 Scope and Methodology ................................................................................. 4 1. Misappropriation of District Revenues .................................................. 6 2. Noncompliance with State Law............................................................ 12 A Statement of Receipts, Disbursements, and Ending Cash

Balances, CID Checking Account ..................................................... 16 B Loan Sources, Uses, and Payments ...................................................... 17 C Unallowable Disbursements by Project................................................ 18 D Unsupported Disbursements by Payee ................................................. 21 E Subway Project Expenses ..................................................................... 22 F Exhibit C of the Petition ....................................................................... 23 G Black Mountain CID Board's Responses ............................................. 24

State Auditor's Report

Introduction

Black Mountain Community Improvement District Table of Contents

Management Advisory Report - State Auditor's Findings

Appendixes

NICOLE GALLOWAY, CPA Missouri State Auditor

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Andy Dazey, Chairman and Board of Directors Black Mountain Community Improvement District Van Buren, Missouri We have audited certain operations of the Black Mountain Community Improvement District as authorized under Section 67.1471.5, RSMo. The scope of our audit included, but was not necessarily limited to, the year ended December 31, 2018. The objectives of our audit were to:

1. Evaluate the district's internal controls over significant management and financial functions.

2. Evaluate the district's compliance with certain legal provisions. 3. Evaluate the economy and efficiency of certain management practices and procedures,

including certain financial transactions. We conducted our audit in accordance with the standards applicable to performance audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform our audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides such a basis. For the areas audited, we identified (1) deficiencies in internal controls over significant management and financial functions, (2) noncompliance with certain legal provisions, and (3) the need for improvement in management practices and procedures including financial transactions. The accompanying Management Advisory Report presents our findings arising from our audit of the Black Mountain Community Improvement District. Nicole R. Galloway, CPA State Auditor The following auditors participated in the preparation of this report: Director of Audits: Robert E. Showers, CPA, CGAP Audit Manager: Wayne T. Kauffman, MBA, CPA, CFE, CGAP In-Charge Auditor: Troy Royer Audit Staff: Tori L. Riley, MBA, CFE Jacqueline E. Brown, MBA

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Black Mountain Community Improvement District Introduction

In December 2018, two Directors from the Black Mountain Community Improvement District (CID) contacted and met with the State Auditor's Office (SAO) and requested an audit based on concerns with the previous Board's use of public monies. Based on information provided by the current Board, the SAO conducted an initial review of these matters under Section 29.221, RSMo. After completion of this review of documentation and communications provided, the SAO determined further investigation was warranted under Section 29.221, RSMo. On December 30, 2018, the Board passed an ordinance formally requesting and authorizing an audit and the audit began on January 7, 2019. The CID is located in the City of Van Buren. The CID was organized in August 2010 by an ordinance passed by the city's Board of Alderman. The CID is governed by a five member Board of Directors. Pursuant to the petition approved by the city creating the district, the five members must be either a property owner of real property within the district, a business owner within the district, an authorized representative of a property or business owner, or a registered voter living within the district. The CID boundaries consist of an estimated 17 acres. The CID had an existing convenience store with a fast food operation within the same building and a discount store. According to petition documents, the CID was formed for the purpose of funding the cost of public infrastructure, storm water controls, and other eligible site costs. The CID was not seeking a blighted status for the district and the area was not declared blighted by the city. The CID has a fiscal year end of December 31. The CID has not received an independent audit of its financial statements. Board members serve 4-year terms and are appointed by the city's Board of Alderman. The initial CID Board appointed by the city was as follows:

Name Term Ended Donald L. Black II (1) (4) August 2018 Chris D. Black (4) August 2018 Jacob W. Black (3) (4) August 2018 Nicolas S. Black August 2018 Curtis L. Black (2) (4) December 2018

(1) Chairman (2) Vice Chairman (3) Treasurer and Secretary (4) Property owner and/or business owner The CID obtained multiple loans to fund two district projects. One loan was obtained from a local bank for $238,309 in March 2013 to consolidate previous private business loans and to fund the remodeling of the convenience store owned by three of the Board members. A second loan was obtained from

Background


Obligations

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a private individual for $214,672 in February 2015 to refinance the prior bank loan. A third loan was then obtained from a local bank for $137,200 in October 2018 to refinance the second loan with a balance of $127,066 and the remaining funds were deposited into the CID bank account for future administrative and legal expenses. As of December 31, 2018 the district had an outstanding principal balance on these bank debts of $133,167. The initial Board then agreed to pay $135,000 (payable at a rate of $800 per month) to the person who provided the second loan discussed in the previous paragraph to finance a portion of the costs associated with constructing a restaurant. As of December 31, 2018, the district had a remaining balance of $107,000 on this obligation. In November of 2010, the qualified property owners of the CID approved the imposition of a sales tax of up to 1 percent on all taxable transactions within the boundaries of the district for 30 years. The Board of Directors subsequently passed a resolution that set the sales tax rate 1-cent (1 percent), effective December 2010. Current businesses within the district include Current River Express, McDonald's, Subway, and Dollar General. Board members at December 31, 2018, were:

Name Term Expires Andy Dazey (1)(5) August 29, 2020 Lisa Burke (2) (3) August 29, 2022 Kevin Dazey (3) August 29, 2022 Greg Pryor (3) August 29, 2020 Vacant Board Seat (4)

(1) Chairman (2) Vice Chairman, Treasurer and Secretary (3) Property owner and/or business owner (4) Vacant until a successor is appointed by the city pursuant to Section 67.1451.4, RSMo. (5) Representative of a business owner as allowed by Section 7 of the Petition. The scope of our audit included, but was not necessarily limited to, the year ended December 31, 2018. We reviewed relevant laws, regulations and CID agreements; including Sections 67.1401 through 67.1571, RSMo; the petition approved by the city creating the CID; the ordinance forming the CID; the development agreement between the district and the property owners; and the bylaws of the CID. Our review of these statutes and agreements covered the legal responsibilities of the district and the CID Board. In addition, we reviewed the loans issued to fund the projects to obtain an understanding of the terms of the obligations and the requirements imposed on the district. We also reviewed Board

Revenues

Governance

Scope and Methodology

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meeting minutes to obtain an understanding of actions taken by the Board and to determine the attendance and the oversight provided by the Board members. We held discussions with former and current CID Board members, the former consultant and custodian of records for the CID, certain city officials, business owners or franchisees of businesses in the CID, an individual and representatives of banks who made loans to the CID, and certain contractors that worked on CID projects. The purpose of these conversations was to obtain an understanding of the district's operations and decisions made by the district's Board of Directors as well as obtaining evidence of compliance with certain legal requirements. We obtained bank information from the current board and former custodian of records. We obtained CID loan information from West Plains Bank after issuing a subpoena for the information. We obtained and reviewed available invoices and canceled checks of the CID to evaluate if all CID costs were allowable and appropriate. We obtained an understanding of the internal controls that are significant within the context of the audit objectives and assessed whether such controls have been properly designed and placed in operation. We also obtained an understanding of legal provisions that are significant within the context of the audit objectives, and we assessed the risk that illegal acts, including fraud, and violation of applicable contract or other legal provisions could occur. Based on that risk assessment, we designed and performed procedures to provide reasonable assurance of detecting instances of noncompliance significant to those provisions.

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Black Mountain Community Improvement District Management Advisory Report - State Auditor's Findings

The Black Mountain Community Improvement District (CID), which was approved by the City of Van Buren to establish a sales tax for the purpose of making public infrastructure improvements inside the district's boundaries, was instead used by its creators and former Board members to pay off private business debts and to improve private commercial property for resale. In addition, the former CID Board approved the payment of CID funds for the construction of a private commercial property owned by a local developer with past business connections with the Chairman of the Board as well as the CID. The former Board1 spent $296,937 in CID monies for purposes not allowed by state law, including approximately $100,603 to pay off private business debts of members of the Board.2 An additional $77,669 in expenses were not supported by invoices or adequate documentation to determine the propriety of the expenditures. However, the majority of the unsupported expenses were paid to entities associated with members of the Board. Public monies were used to secure a bank loan to consolidate $100,603 for three of the five the Board members' existing private business loans. The CID obtained a loan from the West Plains Bank for $238,309 on March 11, 2013. The initial loan disbursement included $100,603 that did not go through the CID bank account, but was disbursed as follows: • $54,284 - West Plains Bank - Farmland Real Estate Loan

(personal loan collateralized with personal farm land) • $12,550 - West Plains Bank - Auto Loan

(personal loan collateralized with a semi-truck and trailer) • $16,875 - Scott Hilderbrand - Private Individual Loan

(personal loan) • $10,144 - West Plains Bank - Commercial Real Estate Loan

(personal loan collateralized with commercial real estate) • $ 6,750 - Dennis Young - Private Individual Loan

(personal loan)

According to Donald Black II, former CID Chairman of the Board, these 5 loans were private business loans used to purchase inventory for resale, equipment, provide cash flows for operational expenses, and performing

1 All subsequent references to the CID Board in the rest of this report pertain to the former CID Board members listed on page 3 unless reference is made to the new Board of Directors. 2 See Appendix C for a listing of unallowable disbursements by project.

1. Misappropriation of District Revenues

Black Mountain Community Improvement District Management Advisory Report State Auditor's Findings

Taxpayer funds used to pay off private business debts

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repairs and maintenance to the Black Mountain Convenience Store.3 These disbursements paid off personal business expenses that provided a benefit to the Board members and not for public improvements to the CID. Using CID monies to pay for private business debts for the purchase of inventory for resale, purchase of equipment, to provide cash flows for operational expenses, and performing repairs violates state law4 and the Missouri Constitution.5 Public monies were used to make improvements to a private asset in an area not designated as blighted, in violation of state law. The use of CID funds for this purpose is also not in accordance with the petition approved by the city to form the district. CID funds were used to make $125,9726 of improvements to the Black Mountain Convenience Store while the store was owned by Board members Donald L. Black II, Curtis L. Black, and Jacob W. Black via Black Mountain Lodge, LLC. These improvements included: • $52,324 for new fuel pumps and a new point-of-sale system for the fuel

pumps • $25,866 for a new canopy for the fuel pumps • $9,960 for a new walk-in beer cave Other expenses included remodeling of restrooms, new wallpaper and painting, electrical work, and labor expenses. These improvements were complete by June 2014. Black Mountain Lodge, LLC, then sold the convenience store 6 months later in December 2014. The public was not reimbursed for the public funds used to renovate the convenience store. The former Chairman, through his attorney, claimed a formal blight designation is not needed in order to use public money to renovate a private business under the CID statutes. However, state law7 requires the petition document to state whether or not the petitioners are seeking a blighted determination. In addition, Section 9 of the CID petition document indicates the petitioners did not seek a blighted status for the district.

3 The Black Mountain Convenience Store was sold in December 2014 and the name was changed by the new owner to the Current River Xpress Convenience Store. 4 Section 67.1461, RSMo, does not grant the authority to the Board to use public monies for private business purposes. 5 Article VI, Sec. 23. 6 Of this amount, $109,082 was expended through the checking account, with an additional $16,890 being expended directly from loan funds. See Appendixes A and B. 7 Section 67.1421.2(i), RSMo.

Taxpayer funds used to improve private business asset for resale

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The former Chairman, through his attorney, also stated that even if a blight designation is required, a Tax Increment Finance (TIF) Redevelopment plan was adopted by the city, which designated the area as blighted. However, Section 1.3 of the TIF Plan states the area inside the CID boundaries is not considered blighted. Also, as part of our fieldwork, we confirmed with a city official that the area within the CID boundaries had never been recognized by the city as being blighted. We requested the former Chairman to provide any evidence that any area within the CID had been recognized as blighted. He could not provide any evidence and stated there may have been evidence in the Carter County Courthouse that was destroyed during the flood in spring of 2017. The petition document requesting the creation of the district gives the appearance the public monies will be used for public improvements and not to rehabilitate a private asset. Also, using public monies to improve a private asset inside the CID boundaries without a blight designation is not in accordance with Section 67.1461.2, RSMo.8 Public monies were used to reimburse a portion of the construction costs of a private business owned by a local developer who recently provided financing to the district Board and who had previously made private business loans to the Chairman of the Board. The CID Board approved the reimbursement of $135,000 in construction costs to the local developer on December 15, 2015, payable at a rate of $800 per month. The construction expenses related to building a Subway restaurant inside the district's boundaries. See MAR finding number 2.2 for additional discussion of this agreement. These expenses were incurred between January 2016 and May 2016 and included the following: • $72,900 for dirt work, concrete, and rebar • $23,500 for legal and consulting fees • $9,925 for surveying Other expenses included electrical work, inspections, and striping the parking lot. While the local developer submitted invoices totaling $146,382, the CID only agreed to reimburse the developer for $135,000 in costs and paid for $3,725 in construction expenses directly from the CID checking account.9

8 While Section 67.1461.2, RSMo, allows the Board to renovate a building owned by a private property owner if the area is a blighted, the CID does not have any blighted areas within the district's boundaries. 9 See Appendix E for a listing of project expenses.

Taxpayer funds used to assist in construction of a private business

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The CID has paid approximately $28,000 to satisfy this agreement and has $107,000 still outstanding as of December 31, 2018. These expenses were incurred approximately 11 months after the CID received financing from this developer when the West Plains Bank called the $238,309 note discussed on page 6. Additionally, Donald Black II stated he had received loans in the past from this developer. The only businesses that received CID assistance in the district were the Black Mountain Convenience Store owned by Black Mountain Lodge LLC and the Subway owned by a business associate of Donald Black II. No other businesses received any assistance from the CID. Donald Black II stated the other businesses in the district, including the McDonald's and the Dollar General, could have requested assistance from the CID but those businesses did not request assistance. We discussed this matter with the owners of those businesses who stated they were never told they could request assistance from the CID. Those business owners also did not have a previous business relationship with Donald Black II. Using CID monies to finance the construction of a new private business asset is not allowed by Section 67.1461.1(16), RSMo, which allows only for the construction or repair of public improvements, and violates the Missouri Constitution.10 The creators of the CID misled the city and the public regarding the purpose of the CID. Donald Black II was the primary petitioner. Chris D. Black was also a petitioner, and both of these individuals privately benefited at the expense of the public. In order to form a CID, a petition must be filed with the governing body (in this case the City of Van Buren) requesting the formation of the district. State law requires the petitions to contain several elements, including a 5 year plan stating a description of the purposes of the proposed district.11 Exhibit C of the petition filed with the city requesting the formation of the CID states the CID will be formed to fund the cost of needed public infrastructure, storm water controls, and other eligible site costs. Exhibit C includes a section titled "Public Improvements to be Funded By District" and lists specific public infrastructure the CID will fund such as utility installation, streets, sidewalks, alleys, bridges, ramps, tunnels, overpasses, underpasses, traffic signs and signals, drainage, water, storm and sewer systems, and other site improvements such as parking lots, garages, lades (sic), dams and waterways, streetscape, lighting, benches or other seating furniture, trash receptacles, marquees, awnings, canopies, walls, barriers, telephone and information

10 Article VI, Sec. 23. 11 Section 67.1421.2(3)(d), RSMo.

Public misled about the purpose of the district

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booths. However, the petition document also includes a statement which allows "any other useful, necessary, or desired improvement to the District as allowed by Section 67.1401 to 67.1571 of RSMo, as amended," which would potentially allow CID monies to be used for private assets if a blight designation had been obtained. Exhibit C of the CID petition is included at Appendix F. As documented in this report, no CID monies were expended on public infrastructure. Public monies were used to directly benefit the private interests of Donald L. Black II, and the business interests of Black Mountain Lodge LLC, which is owned by Donald L Black II, Curtis L. Black, and Jacob W. Black; all of which were board members of Black Mountain CID. Instances include: • Donald L. Black II used CID loan funds to pay off three private business

loans totaling 77,909.12 • Approximately $126,000 in CID funds were used to remodel and improve

Black Mountain Convenience Store13 while the store was owned by Black Mountain Lodge, LLC. Black Mountain Lodge, LLC sold the convenience store 6 months after the renovations were complete. The public was not reimbursed for the public funds used to renovate the convenience store.

• More than $22,000 in business loans taken out by Black Mountain Lodge,

LLC were later paid off with CID monies.14 • CID monies were used to lease land in the CID boundaries from Black

Mountain Lodge LLC. The lease was for 3 years at a total cost of $28,000 for signage for the convenience store. The sign being leased was constructed in 2000, however, the lease for the sign began in 2015 after the convenience store was sold by Black Mountain Lodge LLC. The Board made lease payments from 2015 through 2018 until the new CID Board stopped making them. These payments are an unreasonable use of CID funds and serve no purpose other than to benefit Black Mountain Lodge LLC.

12 See the $54,284 farmland real estate loan, the $16,875 private individual loan, and the $6,750 private individual loan in the Taxpayer funds used to consolidate private business debts section on page 6. 13 See the Taxpayer funds used to improve private business asset for resale section on page 7. 14 See the $12,550 auto loan and the $10,144 commercial real estate loan in the Taxpayer funds used to consolidate private business debts section on page 6.

CID monies used for personal and private gain

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• $10,000 was paid to a consultant for drafting a TIF plan. The TIF plan was proposed by Black Mountain Lodge, LLC. This payment is a business expense of Black Mountain Lodge, LLC and is not an allowable use of CID funds.

• $638 was paid for a title search and mortgage premium related to the

convenience store. This expense was incurred while Black Mountain Lodge, LLC owned the property. This payment is a business expense of Black Mountain Lodge, LLC and is not an allowable use of CID funds.

Section 105.452.1(4), RSMo, prohibits elected and public officials from favorably acting on any matter that provides a special monetary benefit15 to the official. In addition, Section 105.452.1(5), RSMo, prohibits public officials from using their decision making authority for the purpose of obtaining a financial gain. The CID Board could not provide adequate documentation to support $77,66916 of expenses. The CID did not retain sufficient documentation to support these disbursements and we could not determine the propriety or impropriety of them based on information obtained. These unsupported payments include: • $51,259 to entities owned by Board members17 • $15,296 to the CID consultant for unknown purposes • $6,153 to unknown vendors for unknown purposes • $4,955 for backhoe services for an unknown purpose To ensure disbursements are necessary and legitimate, the CID should implement a procedure to require adequate documentation as proof of the disbursement incurred by the district. Taxpayers have placed a fiduciary trust in the Board to spend public funds only on items necessary and beneficial to the district. Members of the CID Board violated state law by using public monies to enrich themselves by paying off previous private business loans, renovating a convenience store (a private asset) prior to selling the store, and providing

15 This section defines a special monetary benefit as being materially affected in a substantially different manner or degree than the manner or degree in which the public in general will be affected. 16 See Appendix D for the listing of unsupported payments. 17 The following entities received payments: $25,000 to Black Brothers Convenience, $14,259 to Black Mountain Convenience, and $12,000 to Black Mountain Lodge.

Unsupported expenditures

Conclusion

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public money to a previous business associate to build a private asset. The petitioners of the district misled the public by telling the city the district would be used to fund public improvements. Other expenditures lacked adequate documentation to determine their purpose, but also involved companies related to the former Board members. All of these issues would have been detected sooner if the district had a governance structure without significant conflicts of interest and a significant lack of oversight. The new CID Board work with law enforcement officials regarding criminal prosecution of the improper payments made for private business loans, private convenience store renovations, and Subway construction expenses, and take the necessary actions to seek restitution. In addition, supporting documentation should be obtained to support all district expenditures and ensure that expenditures do not violate state law and are a reasonable use of public funds. The new CID Board provided a written response. See Appendix G. The CID Board did not prepare or post meeting notices with agendas, meeting minutes were not always maintained, and the Board has not adopted a written policy regarding public access to district records as required by state law. In addition, the CID Board did not enter into a written contract for the agreement to reimburse $135,000 in expenses related to the construction of the Subway restaurant as required by state law. Also, the Board failed to submit financial and performance reports to the city, the Department of Economic Development (DED), and the State Auditor's Office (SAO) in accordance with state law. The Board also did not include all required elements in annual district budgets, and the Board failed to submit annual budgets to the city in accordance with state law. The CID Board did not prepare or post meeting notices with agendas, meeting minutes were not always maintained, one meeting had two different sets of minutes, and the Board has not adopted a written policy regarding public access to district records as required by state law. No one could locate meeting notices or tentative agendas for 23 of 39 (59 percent) Board meetings held during period September 2010 through December 2018. No notices or agendas were prepared for the 15 meetings occurring between July 2014 and January 2018. In addition, notices were not signed by the Board Chairman. Section 610.020, RSMo, requires notice of the time and place of future meetings be posted. In addition, state law18 requires public entities to give

18 Section 610.020, RSMo.

Recommendation

Auditee's Response

2. Noncompliance With State Law

2.1 Sunshine Law

Notices and agendas

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notice of the time, date, and place of each meeting and its tentative agenda to advise the public of matters to be considered. The notice shall be given at least 24 hours prior to the meeting. The district did not prepare or could not locate meeting minutes for any Board meetings occurring after October 4, 2016, and prior to September 4, 2018. An agenda was provided for a meeting on February 6, 2018; however, no minutes were prepared for the meeting. In addition, the CID Board approved and signed two Board resolutions on March 11, 2013; however, no meeting minutes were maintained documenting a Board meeting occurred on this date. In addition, there were two different sets of minutes provided for a Board meeting held on December 15, 2015. No documentation could be provided indicating the original minutes were amended or approved and one set reports the discussion of the reimbursement of $135,000 in costs for the Subway. Section 610.020.7, RSMo, requires minutes of meetings (open and closed) be taken and retained by the public governmental body. Meeting minutes serve as an official record of district business conducted and district actions and decisions. The CID has not adopted a written policy regarding public access to district records as required by state law. A written policy regarding public access to district records would establish guidelines for the district to make records available to the public. This policy should identify a person to contact, provide an address to mail such requests, and establish fees that may be assessed for providing copies of public records. Section 610.023, RSMo, requires all Board meeting minutes and other records be available for public inspection. In addition, state law19 lists requirements for making records available to the public. Also, state law20 allows the district to charge fees for providing access to and/or copies of public records and provides requirements related to fees. In addition, state law21 requires a written policy regarding release of information under the Sunshine Law. The CID Board did not enter into a written contract to support the agreement to reimburse $135,000 in construction costs to the developer of the Subway restaurant discussed in MAR finding number 1. As a result, the CID made 35 monthly $800 payments, totaling $28,000, to an entity without a written agreement.

19 Section 610.023, RSMo. 20 Section 610.026, RSMo. 21 Section 610.028, RSMo.

Meeting minutes

Public access policy and requests for records

2.2 Contracts

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Section 432.070, RSMo, requires contracts for political subdivisions to be in writing. Written agreements, signed by the parties involved, should specify the services to be rendered and the manner and amount of compensation to be paid. Written contracts are necessary to ensure all parties are aware of their duties and responsibilities and to prevent misunderstandings. The Board repeatedly did not timely submit required annual performance reports to the city and the DED as required by state law. In addition, the Board repeatedly did not timely submit required annual financial reports to the SAO as required by state law. • The Board did not submit any of the fiscal year 2010 through 2017 annual

performance reports to the city as required by state law. The fiscal year 2018 annual performance report was submitted to the city on January 30, 2019, after appointment of the new Board.

• The Board submitted the fiscal year 2010 through 2016 annual

performance reports to the DED on June 15, 2018. • The Board did not submit the required financial reports to the SAO for

fiscal years 2010 and 2011 until June 14, 2018, did not submit the required financial reports for fiscal year 2012 until February 6, 2018, and did not submit the required financial reports for fiscal years 2013 through 2016 until February 5, 2018.

Section 67.1471.4, RSMo, requires the CID to submit its annual performance report to the municipal clerk and the DED within 120 days after the end of the fiscal year. State law22 also requires all political subdivisions, including CIDs, to file annual financial reports with the SAO. In addition, 15 CSR 40-3.030, requires each political subdivision to file annual financial reports within 6 months of the end of the subdivision's fiscal year. Effective August 28, 2017, under Section 105.145, RSMo, the SAO must notify the Missouri Department of Revenue if a political subdivision fails to file a timely financial statement. Failure to timely file a financial statement may subject the political subdivision to a fine of $500 per day. Good governance and the conduct of district business requires transparency, openness, and accountability. Financial statement filing would increase transparency and allow the public to be better informed of district activities. The CID Board failed to submit its annual budgets for the years ended December 31, 2010 through December 31, 2017, to the city as required by state law. In addition, the Board failed to approve budgets for fiscal years

22 Section 105.145, RSMo.

2.3 Reporting

2.4 Budgets

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2010, 2011, and 2015 through 2018. Also, while the Board approved budgets for fiscal years 2012, 2013 and 2014, they were not approved in the time frame as required by Section 67.1471.3, RSMo. In addition, the district's budgets for fiscal years 2010 through 2018 did not contain all the elements required by state law. These budgets did not include a budget message and budget summary to describe a general overview, important features, and major changes of the budget. Section 67.1471.2, RSMo, requires the CID to submit their proposed budget to the governing body of the city between 180 and 90 days prior to the first day of the fiscal year. Additionally, state law23 requires the Board to present a budget with a complete financial plan to include a general budget summary and a budget message describing the important features of the budget and major changes from the preceding year. The new CID Board: 2.1 Ensure proper notification and agendas for public meetings are given,

meeting minutes are prepared and maintained for all CID Board meetings, and develop written policies regarding procedures to obtain access to, or copies of, public records.

2.2 Ensure all contracts are in writing. Additionally, consult with legal

counsel to determine if continuing to make payments pursuant to the verbal agreement is in the best interest of the district.

2.3 Ensure annual performance reports and annual financial reports are

filed with the appropriate entities within the time frames established by state law.

2.4 Ensure compliance with state law by submitting the budgets timely

to the city and including a budget message describing the important features of the budget and major changes from the preceding year along with a general budget summary in the district's budgets.

The new CID Board provided a written response. See Appendix G.

23 Section 67.010.1, RSMo.

Recommendations

Auditee's Response

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Black Mountain Community Improvement District Appendix A Statement of Receipts, Disbursements, and Ending Cash Balances for the CID Checking Account January 1, 2011 through December 31, 2018

Source: Sales Tax Reports from the Department of Revenue, bank statements, invoices, and canceled checks.

2011 2012 2013 2014 2015 2016 2017 2018 TotalRECEIPTS

Sales tax $ 21,920 41,477 42,834 41,992 43,155 44,464 50,765 47,373 333,980Loan proceeds - - 114,296 - - - - 137,000 251,296

Total Receipts 21,920 41,477 157,130 41,992 43,155 44,464 50,765 184,373 585,276DISBURSEMENTS

Convenience Store - - 102,824 3,980 - 2,278 - - 109,082 Subway project - - - - 3,725 8,800 9,600 9,600 31,725 Miscellaneous - - - 650 100 125 295 70 1,240 Sign lease - - - - 16,600 5,400 4,200 1,800 28,000 Unknown 14,259 1,600 45,000 2,405 4,587 - - 172 68,023 Professional fees 7,468 750 10,000 875 - 1,100 - - 20,193 Debt service payments - - 19,604 30,580 33,740 33,816 33,816 160,433 311,989

Total Disbursements 21,727 2,350 177,428 38,490 58,752 51,519 47,911 172,075 570,252

Cash, beginning of year - 193 39,320 19,022 22,524 6,927 (128) 2,726Cash, end of year $ 193 39,320 19,022 22,524 6,927 (128) 2,726 15,024

Year Ended December 31,

RECEIPTS OVER (UNDER) DISBURSEMENTS

193 39,127 (20,298) 3,502 (15,597) (7,055) 2,854 12,298

17

Black Mountain Community Improvement District Appendix B Loan Sources, Uses, and Payments January 1, 2011 to December 31, 2018

Source: Loan records, bank statements, and discussions with the former Board Chairman.

2011 2012 2013 2014 2015 2016 2017 2018 TotalLOAN SOURCES

West Plains Bank $ - - 238,329 3,744 - - - - 242,073 Dennis Young - - - - 214,672 - - - 214,672 First Midwest Bank - - - - - - - 137,200 137,200

Total Loan Sources $ - - 238,329 3,744 214,672 - - 137,200 593,945

LOAN USESConvenience Store Project $ - - 13,146 3,744 - - - - 16,890 Personal Business Expenses - - 100,603 - - - - - 100,603 Deposit into Checking Account - - 114,296 - - - - 137,000 251,296 Professional Fees - - 9,646 - - - - 200 9,846 Unknown - - 638 - 2,370 - - - 3,008 Refinance Existing Debt - - - - 212,302 - - - 212,302

Total Loan Uses $ - - 238,329 3,744 214,672 - - 137,200 593,945

LOAN PAYMENTS $ - - 19,604 30,580 33,740 33,816 33,816 33,367 184,923

Year Ended December 31,

18

Black Mountain Community Improvement District Appendix C Unallowable Disbursements by Project January 1, 2011 to December 31, 2018

Date Cleared Vendor Amount

Convenience Store 3/12/2013 Mid South Steel $ 52,3243/14/2013 L&S Electric, Kenny Sellinger, and Phil Oesch 1,9203/18/2013 Bluff Heating and Cooling Refrigeration 5,0003/18/2013 Pryor Construction 1,2783/18/2013 Brown Window, Inc. 1,9283/25/2013 Grassham Lumber 2,6993/25/2013 Maverick Glass 1,1123/29/2013 Supertints Window & Tinting, L&S Electric, Phil 2,296

Oesch, and Kenny Sellinger, Pryor Construction4/30/2013 David Ardnt 3,0005/13/2013 Pryor Construction 8,3005/13/2013 Wallpapers Plus 7325/31/2013 Crafton Farm and Home, Grassham Lumber, and 1,114

L&S Electric Phil Oesch, and Kenny Sellinger7/19/2013 Audio Acoustics, Crafton Farm & Home 4,088

Center, and Grassham Lumber Co.8/22/2013 Kelly Sign Works 25,86611/8/2013 L&S Electric 2,3503/7/2014 Mid South Steel 3,7446/2/2014 Pryor Construction 900

8/21/2014 Pryor Construction 3,0802/5/2016 L&S Electric 2,278

7/19/2013 SMV Inc., L&S Electric, Christy Sanders 1,963Total Convenience Store 125,972

Personal Business 3/13/2013 Dennis Young 6,750Expenses 3/13/2013 Scott Hilderbrand 16,875

3/13/2013 West Plains Bank 54,2843/13/2013 West Plains Bank 10,1443/13/2013 West Plains Bank 12,550

Total Personal Business Expenses 100,603

Project

19



Subway Restaurant 10/19/2015 Smith & Company Engineers 3,27511/20/2015 Smith & Company Engineers 4502/12/2016 Dennis Young 8003/15/2016 Dennis Young 8004/15/2016 Dennis Young 8005/13/2016 Dennis Young 8006/15/2016 Dennis Young 8007/15/2016 Dennis Young 8008/16/2016 Dennis Young 8009/15/2016 Dennis Young 800

10/14/2016 Dennis Young 80012/7/2016 Dennis Young 800

12/16/2016 Dennis Young 8001/13/2017 Dennis Young 8002/16/2017 Dennis Young 8003/16/2017 Dennis Young 8004/14/2017 Dennis Young 8006/7/2017 Dennis Young 8007/7/2017 Dennis Young 800

7/17/2017 Dennis Young 8008/15/2017 Dennis Young 8009/15/2017 Dennis Young 800

10/16/2017 Dennis Young 80011/15/2017 Dennis Young 80012/15/2017 Dennis Young 8001/12/2018 Dennis Young 8002/15/2018 Dennis Young 8003/15/2018 Dennis Young 8004/13/2018 Dennis Young 8006/7/2018 Dennis Young 8007/6/2018 Dennis Young 800



Total Subway Restaurant 31,725

Project

20


Source: Bank statements, invoices, canceled checks, and discussions with the former Board Chairman.


Sign Lease 1/12/2015 Black Mountain Lodge III, LLC 10,0002/20/2015 Black Mountain Lodge III, LLC 6003/18/2015 Black Mountain Lodge III, LLC 6007/24/2015 Black Mountain Lodge III, LLC 6007/24/2015 Black Mountain Lodge III, LLC 6007/24/2015 Black Mountain Lodge III, LLC 6007/24/2015 Black Mountain Lodge III, LLC 6007/24/2015 Black Mountain Lodge III, LLC 6008/19/2015 Black Mountain Lodge III, LLC 6009/21/2015 Black Mountain Lodge III, LLC 600

11/10/2015 Black Mountain Lodge III, LLC 60012/3/2015 Black Mountain Lodge III, LLC 6001/7/2016 Black Mountain Lodge III, LLC 600


7/26/2016 Black Mountain Lodge III, LLC 6008/9/2016 Black Mountain Lodge III, LLC 600

9/13/2016 Black Mountain Lodge III, LLC 60010/5/2016 Black Mountain Lodge III, LLC 60012/8/2016 Black Mountain Lodge III, LLC 6001/10/2017 Black Mountain Lodge III, LLC 6007/12/2017 Black Mountain Lodge III, LLC 6007/12/2017 Black Mountain Lodge III, LLC 6007/12/2017 Black Mountain Lodge III, LLC 6009/8/2017 Black Mountain Lodge III, LLC 6009/8/2017 Black Mountain Lodge III, LLC 6009/8/2017 Black Mountain Lodge III, LLC 600


Total Sign Lease 28,000

General Epenses1/9/2013 Gross and Associates for TIF Plan 10,000

3/19/2013 Carter County Abstract 637Total General Expenses 10,637

Total Unallowable Disbursements $ 296,937

Project

21

Black Mountain Community Improvement District Appendix D Unsupported Disbursements by Payee January 1, 2011 to December 31, 2018

Source: Bank statements and cancelled checks.

Payee Date Cleared AmountBlack Brothers Convenience 3/12/2013 $ 25,000

Total Black Brothers Convenience 25,000

Black Mountain Convenience 12/9/2011 3,259Black Mountain Convenience 12/1/2011 2,000Black Mountain Convenience 11/1/2011 9,000

Total Black Mountain Convenience 14,259

Black Mountain Lodge 2/19/2013 12,000Total Black Mountain Lodge 12,000

Gross & Associates 4/2/2013 2,250Gross & Associates 3/13/2013 9,646Gross & Associates 12/16/2015 300Gross & Associates 6/19/2015 350Gross & Associates 6/1/2015 1,250Gross & Associates 2/18/2015 1,500

Total Gross & Associates 15,296

Ron Kenney Backhoe Service 4/30/2012 1,600Ron Kenney Backhoe Service 11/12/2014 2,405Ron Kenney Backhoe Service 12/17/2015 950

Total Ron Kenney Backhoe Service 4,955

Unknown Payee 3/19/2013 5,750Unknown Payee 3/18/2015 237Unknown Payee 11/2/2018 165

Total Unknown Payee 6,152

Van Buren Postmaster 12/4/2018 7Total Van Buren Postmaster 7

Total Unsupported Payments $ 77,669

22

Black Mountain Community Improvement District Appendix E Subway Project Expenses

Source: Invoices and Board meeting minutes.

Date Vendor Amount

Allowable by State

Law10/7/2015 Smith & Company Engineers $ 3,275 No10/7/2015 Smith & Company Engineers 450 No1/25/2016 Bootheel Sign, LLC 16,450 No3/12/2016 City of Van Buren 3,000 No4/12/2016 Eubanks Electric 5,000 No4/25/2016 Shaffer & Hines, Inc. 5,600 No4/29/2016 Young's General Contracting 13,500 No4/29/2016 Young's General Contracting 51,743 * No4/29/2016 Shaffer & Hines, Inc. 6,200 No5/3/2016 Eubanks Electric 9,407 No5/3/2016 Kirby Law Firm 23,500 No5/6/2016 Rocky Top Seal Coating 600 No

$ 138,725

* This invoice was submitted for $59,400. However, the CID Board did not approve to repay the full amount of the invoices submitted by the developer for reimbursement.

23

Black Mountain Community Improvement District Appendix F Exhibit C of the Petition

24

Black Mountain Community Improvement District Appendix G Black Mountain CID Board's Responses

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Black Mountain Community Improvement District Appendix G Black Mountain CID Board's Responses

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